Construction Liens | Comprehensive Guide to Understanding and Managing 

construction liens

The existence and concept of the construction liens are not novel. However, you need to work in construction to avoid having one. Assume you consider having construction work done on your home or building your own home.

In that situation, it is a good idea to become acquainted with a construction lien, what you can do to avoid having one recorded against the title to your property, and what to do if and when a construction lien is registered.

What Is A Lien?

A lien is a legal claim on a property. A creditor places it there, giving them the right and opportunity to collect the amount owing. Many homeowners have mortgages, a common and widely accepted sort of lien.

Tax liens and unpaid payments from work on the property are also present. Some liens are even more harmful than others.

What Are Construction Liens?

A construction lien is a claim filed against a property by a contractor or subcontractor who has not been compensated for services performed on the property. Construction liens are intended to safeguard professionals from the danger of not receiving payment for services.

The Construction Lien Process

The process of creating a construction lien typically includes the following steps:

  • Notice Requirements: To safeguard their lien rights, several jurisdictions require subcontractors and suppliers to provide preliminary notices or statements of intent to claim a lien within a specific time frame.
  • Recording the Lien: Qualified parties may record the construction lien with the appropriate government or recorder’s office after completing the requisite notices. This phase formalizes the lien claim and serves as public notification of the unpaid debt.
  • Enforcement and Foreclosure: If payment disputes are not resolved, the party holding the construction lien may seek to enforce the lien through legal action, which might result in foreclosure procedures to settle the debt.

Types of Construction Liens

1. Mechanic’s Lien: The most frequent construction lien is the mechanic’s lien, which allows contractors, subcontractors, and suppliers to recover unpaid fees for their services, labor, or supplies.

These liens are often issued against the property where the construction occurred and can be enforced through legal means.

2. Material Man’s Lien: Material man’s liens apply to suppliers of materials utilized in construction projects. These liens safeguard the supplier’s payment rights if the contractor fails to pay for the supplies provided.

Material man’s liens can be issued against the property and any outstanding payments owed to the contractor.

3. Laborer’s Lien: Laborer’s liens are filed by those who supplied manual labor on a construction project but were not paid for it. These liens are often applied to individuals who work directly on the construction site, such as plumbers, electricians, and carpenters.

4. Subcontractor Lien: Subcontractors who worked on a building project but were not paid by the principal contractor file liens. A subcontractor has the right to place a lien on the property where the work was done to secure payment.

5. Design Professional’s Lien: This sort of lien applies to design experts, such as architects or engineers, who provided services for a construction project but were not paid.

Design professionals’ liens secure their entitlement to payment by filing a claim against the property.

6. Filed Lien and Unfilled Lien: Construction liens can be classified based on whether they have been officially filed or to be unfilled. A filed lien is a document the appropriate governmental entity records adequately that provides public notice of the lien.

Types of Construction Liens

What Exactly Do Construction Lien Laws?

Essentially, the law allows individuals who work on your property (contractors, laborers, architects, etc.) who have yet to be paid in full of seeking payment against your property.

However, even if you have paid your general contractor in full if they have failed to pay their subcontractors or other materials suppliers, those who are owed money can record a lien against your property and file a lawsuit against you to foreclose on the lien and seek payment.

A construction lien is essential for contractors since it ensures they are compensated for their labor. A lien can be put on a property after the work has been finished or the materials have been given.

The lien stays on the property until the debt is paid, a court order is obtained to release the lien, or the property is sold by court order. Timing and best practices are crucial for protecting Lien Claimant rights and mitigating risks.

Timing of Liens

Construction liens are subject to strict timelines. While a claim for failure to pay under a construction contract can be made up to two years after the parties’ dispute develops, building liens have a significantly shorter deadline.

If the Lien Claimant desires to pursue an interest in the land through a lien, they must be aware of two critical deadlines:

The Preservation of the Lien. Lien Claimants have 60 days to have their lien “preserved” on the title. The 60-day period begins on the earlier of (a) the contract’s completion date, or, if applicable, the date on which a copy of the certificate or declaration of substantial performance of the contract is published; and (b) the contract’s abandonment or termination.

Failure to register a lien within 60 days may result in the Lien Claimant losing the right to record a claim. A lien claimant should not wait until the “last hour” to preserve a lien, as this may result in the lien failing to be preserved in time.

A lien claimant who wants to register a lien should do so with at least seven days’ notice to their lawyer.

The Perfection of the Lien. “Perfection” of a lien refers to solidifying the lien on title to the premises. A lien is finalized when the Lien Claimant files an action to enforce the lien and, unless an order to vacate the registration of the lien is issued, registers a certificate of action in the specified form on the title to the premises.

If a lien is not finalized but preserved, it will expire and may be removed from the title. A lien must be finalized within 90 days of the last date it could have been preserved.

As a result, a claim Claimant has 150 days to protect and perfect their claim after the contract is fulfilled, abandoned, or canceled, whichever occurs first.

Best Practices

There are three critical measures that all potential Lien Claimants should implement to secure their right to invoke a construction lien:

Written Contract – It is critical to have a written contract that details the terms and conditions of the construction project. This contract should include a payment schedule that specifies when payments will be made and how disputes will be handled. The agreement should also include critical aspects such as interest and scope of work.

Record keeping is essential if a lien must be filed. A lien claimant should keep account of all invoices sent, payments made, and agreements entered into.

Important Information – A lien claimant wishing to record a lien should have the following information readily available before consulting a lawyer:

  • The address where the work was performed;
  • The names of the parties to whom the work was delivered;
  • The start and end dates for work
  • The scope of the work performed:
  • The overall contract price,
  • The amount remaining is to be paid.
Construction Lien Laws

Why Hire A Construction Lien Lawyer?

Construction projects can be complex, and disagreements can occur at any time. A construction lien attorney can provide legal advice and assistance to guarantee that your rights are protected and that you are compensated fairly for your services and materials.

They may also assist you in navigating the complex legal system that governs construction liens in Ontario, ensuring that your claim is submitted correctly and all deadlines are met.

Bottom Line

The Construction Act governs construction liens Ontario, which are critical for collecting payments in the construction business. Contractors, suppliers, property owners, and project managers must know these liens to complete the project successfully. Building liens requires legal compliance, proactive financial management, and skilled legal guidance.

A business lawyer in Toronto can assist you in evaluating, creating, or negotiating your construction contract. Ag Law Firm in Toronto can help small business lawyers legally defend their companies.

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